Trade deficit narrows in October, lowest in 2011

WASHINGTON (MarketWatch) — The U.S. trade deficit narrowed for the fourth straight month in October, bringing the trade gap down to its lowest level this year.

The nation’s trade deficit narrowed 1.6% in October to $43.5 billion, the Commerce Department said.

A prominent feature of the report was a sharp upward revision to the September trade gap to $44.2 billion from the initial estimate of $43.1 billion, which could cut the government’s estimate of third-quarter growth, now estimated at a 2% annual rate.

Stocks were higher in early trading Friday after European leaders agreed to closer fiscal ties and other measures to tackle the region’s debt crisis. The Dow Jones Industrial Average
DJIA, +0.23%
was recently up 118 points to 12,114.

Stocks also benefited from a rise in consumer sentiment reported by the University of Michigan and Thomson Reuters.

Both imports and exports declined in October, with imports falling at a slightly faster rate.

Economists said that a decline in petroleum imports was the biggest driver behind the decline in October.

Overall, exports fell 0.8% to $179.2 billion in October after hitting a record high in September. Imports fell 1.0% to $222.6 billion.

Imports have been treading water after hitting $226.2 billion in May, the highest level in this business cycle. Economists say that U.S. merchants are being cautious about stocking shelves this holiday season.

Excluding the change in prices, the real deficit narrowed by almost $2 billion in October, suggesting that trade may add to fourth quarter growth.

Macroeconomic Advisers said they raised their trading forecast of GDP growth in the fourth quarter by two-tenths of a percentage point to 3.7%.

But many economists think this good performance will not last as the global economy is losing strength while imports might pick up.

Lessons in the Europe mess

(3:22)

WSJ's Ilan Brat takes a look at Spain and a lesson it provides in the current European economic crisis. When things seems fiscally strong in the late 1990s, weaknesses in the economy were not noticed. AP photo

“Net trade will likely be a net drag on GDP growth through all of 2012,” said Ian Shepherdson, chief U.S. economist at High Frequency Economics.

According to the report, imports of goods alone fell 1.2% to $186.6 billion in October. The largest drop came from imports of industrial supplies, principally crude oil. Imports of autos also declined. Imports of agricultural products and capital goods were the highest on record in the month.

Meanwhile, exports of goods alone slipped 1.2% to $127.8 billion. However, the United States exported a record amount of capital goods and petroleum in the month. Exports of civilian aircraft also increased in October.

The petroleum deficit narrowed 8.4% in October to $24.4 billion. This is the lowest level since last December.

The value of U.S. crude oil imports fell to $26.0 billion in October from $28.3 billion in September as the price of a barrel of oil fell to $98.84 from $101.02 in the previous month. The average price per barrel of crude oil has fallen for five straight months.

China, Japan and euro area

Despite the improvement in the overall trade gap, the U.S. trade deficit with China widened to $28.1 billion in October from $25.7 billion in the same month last year. Imports from China in October were the highest on record.

Ahead of the 2012 presidential election, the White House and Congress are increasing pressure on China to allow its currency to strengthen. Even top Federal Reserve officials are asking China to do more to increase its imports.

The data for October show that trade with Japan has recovered from March’s earthquake and tsunami. Imports from Japan in October were the highest since April 2008 while exports to Japan were the highest since March 1997.

Economists are growing concerned that an expected recession in Europe as a result of the sovereign-debt crisis may dampen U.S. exports to the region.

But so far there is little sign of weakness. U.S. exports to the euro area totaled $17.4 billion in October, up from $16.2 billion in the same month last year.

John Ryding, economist at RDQ Economics, said he already detected signs of a slowdown with export growth to the European Union as a whole slowing to 7.2% growth over the last 12 months ending in October from 14% over the same period in September.

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